Can you hear that scurrying sound emanating from Cambridge? That’s me still trying to catch up with everything I’ve missed while on holiday, and I am painfully aware that (a) it’s old news to you, and (b) I’m tackling it in a fairly random order – and I apologise on both counts. But today’s topic is the report published by the UK’s Parliamentary Commission on Banking Standards on 19 June and called – touchingly optimistically and with a nice gentle pun – “Changing banking for good”.
Much of the content of the report – although terrifically important – is too technically bank-y for this blog, but there are points at which it dovetails elegantly with our AML concerns. Right at the outset, the report stresses the importance of “making individual responsibility a reality”. As I moaned a while ago, we’re never going to get a certain type of senior executive to take AML seriously until he is at personal risk of penalty. As this new report puts it: “Top bankers dodged accountability for failings on their watch by claiming ignorance or hiding behind collective decision-making. They then faced little realistic prospect of financial penalties or more serious sanctions commensurate with the severity of the failures with which they were associated.” To address this shortcoming, the report proposes “a Senior Persons Regime, which would ensure that the key responsibilities within banks are assigned to specific individuals, who are made fully and unambiguously aware of those responsibilities and made to understand that they will be held to account for how they carry them out [and] a Licensing Regime alongside the Senior Persons Regime, to apply to other bank staff whose actions or behaviour could seriously harm the bank, its reputation or its customers”. When things go wrong, the report suggests that enforcement should be against individuals rather than (or perhaps as well as) against firms: “All key responsibilities within a bank must be assigned to a specific, senior individual. Even when responsibilities are delegated, or subject to collective decision making, that responsibility will remain with the designated individual. The attribution of individual responsibility will, for the first time, provide for the full use of the range of civil powers that regulators already have to sanction individuals.”
Moreover, the report holds that it is high time to look at remuneration: “Many bank staff have been paid too much for doing the wrong things, with bonuses awarded and paid before the long-term consequences become apparent…. [There should be] a new Remuneration Code, so that incentives and disincentives more closely reflect the longer run balance between business risks and rewards.”
Of course, marvellous and thrilling though this all is, it is only a report – a set of suggestions – and the financial sector might have a few concerns about it. Let the horse-trading begin.